Tag Archives: alt-investing

How Greece Is Impacting The Financial Markets

From my perspective, the greater risk to investors is not their relative exposure to the country of Greece in their portfolios, but their relative exposure to other countries. I contend that international stocks, particularly within Europe and also including certain emerging markets, are an attractive asset class for risk-adjusted return potential over the intermediate- to long-term. Any pullbacks in international equity strategies (and European-based strategies in particular) as a result of the ongoing Greek drama, may present an attractive entry point, or re-entry point, for some investors. A lot of the volatility witnessed across global stock markets thus far in 2015 can be attributed to the ongoing soap opera involving Greece, the European Union and the International Monetary Fund. Greece, arguably the most notorious of the P.I.I.G.S. (Portugal, Italy, Ireland, Greece and Spain) countries, has been confronting a mountain of debt issues – currently estimated at 320 billion Euros – within the country for years. If that number is not staggering enough, consider these other economic statistics plaguing the country of Greece: Gross Domestic Product has fallen by 25% since 2010 A Debt-to-GDP ratio of 177% An unemployment Rate of 27% More than 20% of the Greek population is over the age of 65 – making it the world’s 5th oldest nation – and only 14% of the population is under the age of 15 (Data sources: BBC News, ECB, IMF, Green National Statistics Agency, Bloomberg.) With Greece in need of another bailout, or debt restructuring, to avoid defaulting on a significant repayment to the IMF at the end of June (and more to come thereafter), and Greece Prime Minister Tsipras opposing additional austerity measures (ex. pension cuts and potential increases to the age of retirement for these purposes in Greece) that may be a part of any new debt deal, many market participants are now bracing for the increased likelihood that Greece will leave the Euro – whether on their own or at the request of the EU. Germany, as the largest member of the EU, which Greece reportedly owes $56 billion alone, is showing signs of diminished interest in saving Greece again. This dubious view is shared elsewhere in Europe which suggests that this standoff may remain until the end of June deadline. While it is unknown if either party will blink first, or if the proverbial can will be kicked further down the road, we, at Hennion & Walsh, believe that it is appropriate for investors to consider the impact that a Greece exit from the Euro (now being referred to by many as the Grexit) would have on their portfolios and financial markets overall. Using a couple of the larger and more popular international equity exchange-traded funds below, including one Europe-specific strategy, as proxies, it would appear as though investors may not actually have that much exposure to Greece if they are investing in international equities through these types of product structures. FTSE Europe ETF (NYSEARCA: VGK ) has a 0.07% allocation to Greece as of May 31, 2015, according to Morningstar. iShares MSCI EAFE ETF (NYSEARCA: EFA ) has a 0.00% allocation to Greece as of May 31, 2015, according to Morningstar. From my perspective, the greater risk to investors is not their relative exposure to the country of Greece in their portfolios but rather their relative exposure to other countries that may be impacted by either a Greek default or a further extension of credit to this debt-burdened country. To this end, any funds “saved” by not allowing for any future Greece bailouts could be applied to additional quantitative easing measures or other economic stimulus programs within the Eurozone. It is worth noting that the fear of contagion throughout the Eurozone also adds to the volatility in the region each time a potential Grexit is in the headlines. I contend that international stocks, particularly within Europe and also including certain emerging markets, are an attractive asset class for risk-adjusted return potential over the intermediate-longer term. I would even suggest that having Greece ultimately leave the Euro would provide some certainty to international investors and relieve Europe of one of the anchors holding down their own economic recovery. Thus, any pullbacks in international equity strategies, European-based strategies in particular, as a result of the ongoing Greek drama may present an attractive entry point, or re-entry point, for some investors. Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program consistent with the investment theme discussed in this article. This post is for educational purposes only and should not be considered as a solicitation to purchase or sell any of the securities or investment themes mentioned. International investments have their own unique set of risks that should be understood before considering an investment. As a reminder, all investment decisions in our view should be made consistent with an investor’s financial goals, tolerance for risk and investment timeframe. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Fight Rising Yield With These High Yield ETFs

A flurry of strong U.S. economic indicators, especially the better-than-expected May job growth number which is one of the key gauges of the Fed policy determination, set the stage for a September timeline for the Fed rate hike. This, along with rising supplies of debt securities pushed the yield on the benchmark 10-year Treasury note to this year’s high of 2.42% on June 9. In such a backdrop, yield-loving investors might be looking for ways to beat the benchmark Treasury yield and yet enjoy decent capital gains. For them, we highlight some ETF choices that provide extra yield and might be in focus once the Fed puts an end to the rock-bottom interest rate environment. Senior Loan ETFs Senior loans are issued by companies with below investment grade credit ratings. In order to make up for this high risk, senior loans normally have higher yields. Since these securities are senior to other forms of debt or equity, senior loans give protection to investors in any event of liquidation. As a result, default risk is low in this type of bonds, even after belonging to the junk bond space. Moreover, senior loans are floating rate instruments and provide protection from rising interest rates. In a nutshell, relatively high-yield opportunity coupled with protection from the looming rise in interest rates post Fed tightening should help the fund to perform better in the second half of 2014. PowerShares Senior Loan ETF (NYSEARCA: BKLN ) The most popular and liquid fund in this space is BKLN with AUM of $5.7 billion. The fund tracks the S&P/LSTA U.S. Leveraged Loan 100 Index and holds 115 securities in its basket. It has weighted average maturity of 4.71 and average days to reset of just over 35. Though senior loans account for a hefty 83.7% of the assets, high yield securities also make up for 9% share in the basket. The product charges an expense ratio of 65 bps a year and pays out an attractive dividend yield of 3.95%. The ETF has added nearly 1% in the year-to-date timeframe (as of June 9, 2015). Preferred Stock ETFs Preferred stocks are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay the holders a fixed dividend, like bonds. These types of shares normally get priority over equity shares both in case of dividend payments as well as at the time of liquidation if the company fails. Preferred stocks are thus relatively stable and usually exhibit a low correlation with other income generating assets. These products are interest rate sensitive – lesser than the bond space though – but a high yield opportunity might present them as potential bets once the Fed hikes rates. iShares S&P U.S. Preferred Stock ETF (NYSEARCA: PFF ) PFF is perhaps the biggest and the most popular name in the preferred stock ETF space. With total assets of $13.3 billion, it is one of the largest funds in this category. The ETF charges 47 basis points in fees. The fund has returned 1.83% so far this year (as of June 9, 2015) and pays out 6.09% per annum as dividends. The ETF holds 302 securities in all and eliminates concentration risk by allocating a mere 15% of its total assets in its top 10 holdings. Business Development ETFs Business Development Companies (BDCs) are firms that give loan to small and mid-sized companies at relatively higher rates and often grab debt or equity stakes in those companies. BDCs dole out high cash payments together with captivating the equity performance of the borrower. The U.S. law obliges BDCs to hand out more than 90% of their annual taxable income to shareholders. Market Vectors BDC Income ETF (NYSEARCA: BIZD ) The ETF looks to invest in a variety of BDCs which are traded in the American market by tracking the Market Vectors U.S. Business Development Companies Index. The ETF has $82.5 million in AUM. In total, BIZD invests in 29 firms with a relatively high level of concentration in the top names. Ares Capital and American Capital account for 14.6% and 9.9% of total assets, respectively. The fund yields 8.29% annually (as of June 9, 2015) and is up about 3% year to date. Originally posted on Zacks.com

Market Vectors Rolls Out A Spin-Off ETF

The niche ETF concept has been at the top of every issuer’s mind lately. There is hardly any scope for plain vanilla products in this rapidly growing industry. Moreover, these unique investing options give investors a scope to play the various areas of the market in basket form, using strategies that are usually hard to reproduce in a regular-themed portfolio. Probably, inspired by this sentiment, Market Vectors recently rolled out a spin-off ETF. The Market Vectors Global Spin-Off ETF (NYSEARCA: SPUN ) in Focus The fund tracks the Horizon Kinetics Global Spin-Off Index and comprises approximately 87 multi-cap securities belonging to the developed world. The universe of companies eligible for inclusion in the Index includes those that have been spun off. As per the summary prospectus , “for each company, an early entry at the start of the spin-off cycle aims to exploit valuation disconnects caused by selling pressure and pricing inefficiencies. A long-term hold seeks to capture periods of improved operating efficiency.” The fund does not appear to be concentrated on the top 10 holdings as no stock accounts for more than 1.64% of the basket. Among individual holdings, Global Brands Group Holding Ltd, Prothena Corp Plc (NASDAQ: PRTA ) and Indivior Plc ( OTCPK:INVVY ) occupy the top three positions in the fund, which has a net expense ratio of 0.55%. In terms of sector allocation, the ETF has double-digit allocation each in Consumer Discretionary, Financials and Industrials with 25.2%, 19% and 18.5%, respectively. Geographically, the fund is heavy on the U.S. with more than 65% exposure while the U.K. (6.5%) and Australia (5.5%) come in as the distant second and third. How Does it Fit in a Portfolio? In a spin-off, a company detaches certain assets to make a separate company and ‘spins off’, or hands out shares in that entity to the current shareholders. The most usual cause of a spin-off procedure is that the stock price of a big diversified company is unable to reciprocate the fair value of all its branches of operations. These could actually be among one of the top performing assets in the market. This is true for SPUN which actually reflects the full-phase of the separated companies. The issuer noted that such entities normally underperform in the earlier phase of their life-cycle due to the absence of historical performances, dearth of analyst coverage, inferior peer comparisons and market cap issues. However, over the long term, these entities trend to perform better on availability of historical results and the consequent perfection in the analysts’ reports. Better management often makes these lucrative bets. Thus, from the long-term perspective, the fund might be well liked by investors. ETF Competition The coast is clear for this newly launched ETF as it has to compete with just one ETF namely the Guggenheim Spin-Off ETF (NYSEARCA: CSD ) . Otherwise there is no meaningful player in this space. This fund tracks the Beacon Spin-off index which looks to focus on about 40 companies that have been spun-off within the past 30 months, but not before six months prior to the applicable rebalancing date. The fund charges 66 bps in fees (net) which much lower than the newly ETF. Thus, from the expense ratio point of view, SPUN scores a point over CSD. Moreover, CSD has moderately heavy concentration risk with the top four holdings taking 5% to 6% each. Thus, we see no hurdle for SPUN in garnering investors’ money. Article originally published on Zacks.com